Don't Just Cut Supply Chain Costs, Look at 'Bad' Revenue

Dec. 17, 2008
Look at what's undermining profitability

In a downturn, most companies immediately focus on cost reduction. That could be a mistake, according to Frank Burkitt, National Service Line Leader Supply Chain & Operations, Deloitte Consulting LLP.

"To make smart cuts to your supply chain, you should first understand which elements represent the core of your business," said Burkitt. "Which customers are the most profitable and which are expendable? Which products do customers truly care about and which are just window dressing? What level of service quality do key customers need and expect?

"Ironically, the best way to start cutting costs may be to start cutting revenue -- specifically the 'bad' revenue that undermines profitability. Decide which revenue streams are not worth preserving and then target cost reductions," said Burkitt.

Burkitt also points out that while companies have the tendency to cut R&D invesmtents in non-core products, reduceding R&D investment can result in a "bland portfolio of products for which customers wont be willing to pay a premium."

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